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The International Institute for Science, Technology and Education (IISTE) , International Journals Call for papaers: http://www.iiste.org/Journals

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23 jesd owolabi usman--252-263 23 jesd owolabi usman--252-263 Document Transcript

  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011 Econometric Evaluation of Government Spending, System of Government and Economic Growth in Nigeria 1970 – 2007 Owolabi A. Usman Department of Economics College of Management and Social Sciences Osun State University, Osogbo, Nigeria E-mail- labisky@yahoo.comAbstractThe study relates to the econometric analysis of the relative effectiveness of fiscal policy management in Nigeria,between 1970 and 2007. It employed reduced forms model in addition to, Beta coefficient, Theil’s inequality andRoot Means Square Error (RMSE) techniques to investigate the stability and effectiveness of the estimated fiscalmodel which represent government spending, during and after estimation periods. The results reveal stability of themodels and further confirmed the fact that government spending is the major determinant which influences andpredict Nigeria macro economic activity. There is what appears to be a manifestation of the so-called ‘crowding out’effects of fiscal policy actions in Nigeria. These are associated with the negative sings assumed by coefficients ofthe lagged fiscal policy variables (except recurrent expenditures).Key words: Econometric Analysis, Government spending system of government, economic growth and crowding out effects1.0 Introduction Government spending habit is supposed to be guided by the fiscal Policy which is defined as actions takenby the government to alter the level of its taxes and expenditures in order to bring about desired changes in macroeconomic activity. Fiscal policy is supposed to work harmoniously with other set of policies such as monetarypolicy, exchange policy, trade policy and income policy so as to accomplish the following economic objectives: (a) Price stability (b) Full employment of all manners of productive resources (c) Accelerated economic growth. (d) Balance of payment equilibrium and (e) Equitable distribution of income There is however conflicts at times in the achievement of the stated objectives, thereby necessitating somesort of trade – off. In Nigeria the government spending has been criticized by many and it was thus reported in both foreignand local media that Nigeria newly found democracy has exerted too much spending liability on the government atall levels. It is believed that Nigeria runs one of the most expensive democracies in the world far more than Americawhere the country borrows her presidential system of government. For a country that was recently relieved ofburden of indebtedness in 2007, the growing government expenditures in the face of dilapidating infrastructures and 252
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011issue of government expenditure without serious justification has attracted abundant concerns and elicited stronginterest from the policy makers and researchers in academics. This work is therefore significant for a country whose democratic structures is fragile but which have beenadjudged to have created reasonable alternative to the hitherto military rule .The military government had pervadedthe administration of most populous African nation for over 30 years, and has rendered it grappling withdevelopmental problems in spite of her abundant men and natural resources. For instance, only in 2011 budget,Nigeria Government earmarked N18 billion to provide presidential fleet, this in addition to N23.1 billion spent onthe same fleet in August 2010, which implies that over N41billion was spent on presidential fleet in two years.1.1 Objectives of the study The objective of this study is to investigate the impact of government spending on economic growth.Specific objectives are therefore;- (i) To examine the nature and determinants of government spending, (ii) To assess the performance of the fiscal policy management of the government and make comparison between the military and the civil rules.2.0 Literature Review Fiscal stabilization and full employment are the two essential element of fiscal policy for the purposeinclude discretionary fiscal policy and non-discretionary fiscal policy, otherwise called automatic stabilizers. Weshall discuss how each of these works, paying particular attention to their nature and applicability in developingeconomy like Nigeria. The designation suggests, discretionary fiscal policy refers to the deliberate use of fiscal actions forachieving certain macroeconomic objectives. Traditionally, these policies are applied to the problem of recessionand inflation. Let us sketch briefly the specific set of policies required for each case. An expansionary fiscal action must be adopted for solving the problem of recession. This implies thataggregate demand must be boosted by: Increase in government spending and/or operating a budget deficit forexpansionary effect if the federal budget is already in balance or reduces taxation or the combination of the duo The application of the above policies will invariably generate multiplier effects which will pull theeconomy out of a recession through increased employment, output and income. Let us now study in detail the mechanisms by which the proposed policies will influence stabilization, especially in the Nigeria economy. We noted earlier that government should increase expenditure in a recession and decrease it duringinflation. The two types of government expenditures which can be used in accomplishing these tasks are directpurchase by government and transfer payments. The multiplier effect of direct government purchasing is oftengreater than that of transfer payments. This is because direct expenditure on programmes like public housing, road 253
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011construction, transition programmes, and running administration amongst others will generate employment andoutput although transfer payments will trigger off consumption multiplier effects, such effects will be lower becauseof possible leakage into the savings stream. We can, therefore, conclude that direct purchases are more effectivethan transfer payments is fiscal measures. In the context of the Nigeria economy, it should also be noted that the impact of direct purchase may beweakened by the fact that the items are mostly imported, as where the materials are domestically produced, the fiscalimpact would not leak out of the economy. Taxes are supposed to be increased during inflation and decreased during a recession. The stabilizing effectof taxation, however, depends on the type of tax used. Some economists for instance, are of the opinion that indirecttaxes have a greater contractionary impact since they tend to act across a wide spectrum of commodities. It wouldappear that the issue depends on whether or not direct or indirect taxes are dominant in the revenue structure. InNigeria, for instance indirect taxes especially from dominated the revenue structure. The channels by which taxmeasures stabilize the economy should, however, be noted. These are through a reduction in the purchasing powerof households and discouraging business investment. The converse view that the reduction boosts aggregate demandneeds some clarifications. First, such a reduction depends on the marginal propensity to consume (MPC) of theeconomy, the number of people caught in the tax net and the efficiency of the tax system. In Nigeria, for instance, areduction in taxes may not have a substantial impact on Nigerians tax profile (the very rich often practice taxavoidance) and the proceeds of the cut would not necessarily be used for direct consumption. Empiricalinvestigation has shown that windfall incomes in the Nigeria context are more savings effective than permanent(average) income, (Usman, 2010). When the federal budget is balanced, contractionary fiscal policy requires that a budget surplus bedecreased while an expansionary fiscal programme requires that a budget be increased. As was pointed out transferpayments are unearned income. Some categories of these payments, like public debt servicing, pension andgratuities and non statutory payments to states, have automatic stabilizing effects in recent times in Nigeria, thevalue added tax (VAT) with strong transfer element has automatic stabilizing effects. In countries where agricultural productivity is high, such as the United States, government often embarkson farm income stabilization scheme. One of these is price support, whereby government buys and stocks farmproduce when there is surplus and falling prices, and sells these to the public during periods of scarcity and risingprices. This with the use of such buffer stocks, price and stabilized by placing a ceiling during booms and a floorduring recessions. This approach tends to stabilize both the income of farmers and the general price level in theagricultural sector of economy. Historically in Nigeria, marketing boards were set up in the 1950s and 1960s toperform a similar function for export produce. The boards were to retain surplus revenue when world market priceswere high and expend them in supporting domestic prices when they fell below the average. The scheme workedwell at first but soon faltered since the marketing boards were looked upon as revenue collection agents for thegovernment. Since the dismantling of the marketing boards following the structural adjustment reforms of the 1986,these functions no longer exist. 254
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011 Dividends in advanced countries are often maintained at a stable level by companies so that they do notfluctuate with profits. This means that the purchasing power of shareholders is considerably reduced during inflationwhen profits are to be higher. This exerts a stabilizing effect because the retained company profits are often saved. In Nigeria, dividend policy used to be reviewed periodically to enhance its automatic stabilizing effects.Since the number of shareholders is relatively, small, their dividend policy, as in automatic fiscal stabilizer, wasprobably minimal. In recent times government has removed controls on dividend policies, so its automaticstabilizing effect has further been eroded.2.1 Review of Empirical Literature In the contention of Friedman (1963) having used America time series data accumulated from 1987 to1958, reported that money supply exerts more influence on economy than fiscal policy. Friedman and Meiselman(1990) had made use of three important variables viz gross domestic product, consumption, as dependent variablesand money supply as independent variable extending over 5 quarters with both end points (of the polynomial)constrained to be zero but reported lack of stability of the investment multiplier. Apart from US, Denmark, Finlandand Norway, Barret and Walters (1976) conducted also for United Kingdom similar studies on the same subject. For developing countries, Ajayi (1974) in the case of Nigeria Atsegolu (1975) for turkey and Ubogu (1985)for fifteen African countries remain major studies on fiscal policy and economic growth like Atsegolu-Tilman(1980) for Korea, Gupta work for Turkey, ltester (1997) again redefined autonomous expenditures and a variableand discovered that autonomous expenditure exert more influence on economic change in India and that agriculturalhad a great potential role to play in this country. Not only this, the study also concluded that high powered moneyschemed to fit in better as definition of money. Ajayi (1974) hypotheses for Nigeria is that fiscal policy exertssignificant influence on Nigeria economy. Ajayi (1974) study also defined current government expenditure as proxyfor fiscal policy. More recently and using another definition of government expenditure, Sunmonu and Alarudeen (2004)that composition of variables to be incorporated on the model, is one important issue to be considered when looking The definition of money encompasses currency savings and time deposit while automous expenditure isdefined to comprise net private investment, not balance of trade and the government deficit on current account. Theconclusion drawn from this work is that stock of money and not lending rate or investment is of greater relevance tothe policy makers. Among the critic of this study are Hester (1964) Modigliani (1983) who felt not contented with FriedmanS. definition of money and the three variable of consumption, money supply and autonomous expenditure was ratherperceived as inadequate. The study carried out by Sandimo and Allingham (1972), indicate through parametric teststhat the multiplier model employed in their analysis predicted the macroeconomic activities better than the moneysupply. This study also confirmed the report of Anderson and Jordan (1964) which indicate that economic activitiesin U.S.A. was better responded to government spending rather than monetary policy. But in contrast to the methodadopted by Sandimo and Allingham (1992) the single equation reduced form model and the definition of money ascurrency plus demand deposits suggest money supply being superior. Much like the earlier works, this particular one 255
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011is also criticized on two grounds, the use of quarterly data rather than annual data and the measurement of changesin fiscal policy without removing endogenous influence. Using the model of Massachusetts Institute of Technology and Federal Reserve Bank (MIT/RB), Gramlichand Frank (1988) reported that fiscal policy worked in the determination of income level. Supporting this study areKarchbrenner and Frank (1998) Keran (2001) at least for many years after second world war, Donald Hester (1999),is of the belief that the appropriate method of testing a theory is to examine the accuracy of its prediction ofendogenous variables given knowledge of the values of the variables specified by the theory to be exogenous. Forinstance, Daprano and Mayor (2000) reports stressed that the key to the accumulation of empirical knowledge asopposed to the construction of empirical hypothesis is the replication of empirical studies on new bodies of data. However, Sunmonu and Alarudeen (2004) traced differences in the earlier studies to four sources which are() time period used for analysis, the choice of relevant variables and the technique used for estimating laggedcoefficients and lack of appropriate post estimation tests. However, Khan (1978) conducted four tests to compare the relative stability of monetary velocity andinvestment multiplier for America economy between 1953 to 1972 using quarterly data. Some of these tests areCusum test Brown, Durbum and Evans (1975), log-likehood ratio test, time trend and moving regressions. Jordan(1989) following this method assumed a fourth degree polynomial.2.2 Problems of application of fiscal policy The main problems facing Nigeria is the successful application of so government spending which includethe timing problem, the crowding-out problem, the political problem, the constitutional problem, the structuralproblem, the institutional problem and the problem of conflict of objectives. In finding a cure for a deadly disease, time is essence. If diagnosis is early, the patients survival is moreprobable than if diagnosis is made at an advance stage of a disease. Cancer is a typical example of disease whichcannot be cured if diagnosed late. The situation is the same for the application of fiscal policy to solve economic ills.Correct timing is always difficult to achieve because there are many lags between making and implementing fiscalpolicy. These include; a. The recognition lag, which indicates the time difference between the occurrence of the problem and its manifestation in the statistical trends. The problem is compounded in Nigeria because its statistical infrastructure and data base are extremely poor: b. The administrative lag, which refers to the waiting period between the recognition of the problem and the taking of definite decisions to act on it. This lag is caused mainly by the slow process of democratic decision making in parliament. The decision often gets bugged down because of political considerations and even worse during military era when actions are not subjected to serious deliberations c. The operational lag, which refers to the time needed for the implementation of fiscal action to have the desired effects. This operational lag is particularly long in a developing economy like Nigeria where there are bureaucratic bottlenecks, dependence on foreign sources of supplies, and consultants; and poor infrastructure. 256
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011 The time lag problems can create a situation where late policy application can destabilize the economy instead of stabilizing it.3.0 Research Methodology This study shall make use of simple reduced form models to bring out the relevant macroeconomicrelationship. Based on the estimation results a number of tests such as stability chow and Granger causality, shallalso be carried out.3.1 Model Specification Arising from the perused literatures. It appears differences in analytical technique variable definition, timelag and data availability have given rise to differences in empirical results in many cases. To bring out relevantmacro-economic behavioral relationships two major methods are normally explored. The method is either simplereduced form model or structural model. Following Ango and Fordan (1997), this study employs simple reducedform models and incorporate distributed lag form as it has not been used in similar studies ever conducted fordeveloping countries (Usman, 2010). The annual time series data spanning between 1970 and 2007 shall be used. ∆Yt = o+ 1∆Nt+ 2∆Nt-1 + 3∆Rt-1 + 4∆Rt-1 + 5∆Kt ++ 6∆NKt t ………………(i) ∆Yt = o + 1∆Nt + 2∆Rt +∆Kt + et …… (ii) ∆Yt = o + 1∆At + 2 ∆At-1 + 3 ∆At-2 + etWhere ∆ - The first difference Y - Gross Domestic Product K - Capital Expenditures (federal to nominal prices) R - Recurrent Expenditure (federal at nominal price) N - Net exports (nominal) A - K+R+N autonomous expenditure Dummy variable of 0 and 1 were also introduced to take care of effects of system of government 0 = Military Rule, 1= Civil Rule All these models shall be estimated by Ordinary least square.3.1.1 Causality test model It is observed that the understanding of causality is not the same for all economists, Zellner (1979). But thisstudy shall employ the original arranger causality test between two series, using least square approach. 257
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011 3 3Y   j Yi  j   At 1  et j 1 i 1 3 3At   j Yi  j   iAt 1  et j 1 i 1At  j 1 jA1 j  etSource of Data The secondary data required for this study are extracted from various issues of the National Bureau ofStatistics Publications such as annual absracts of statistics and digest of statistics. A part from this source, theCentral Bank of Nigeria (CBN) statistics bulletin, annual reports as well as CBN Economic and Financial Review.4.0 Presentation and Discussion of Results The following set of equations, results relates to the purely autonomous expenditure variables under thereduced form models of income determination:-Y = 3594.83* + 0.72*NE – 1.74***NE-13.03***Nt(1.54) (1.53) (2.24) (2.88) 2R  0.54 D.W -1.43 F.656**** N = 29Yt = 3927. 86* + 0.45 Vt + 2.26*** Rt + 1.30Kt(1.63) (0.96) (2.42) (1.14) 2R  0.47 D.W – 1.62 F = 9.67***N = 28Yt = 3. 891.68* + 0.83** Vt – 0.06 Rt-1 + 1.34***At-2 (1.62) (3.25) (-0.14) (2.60) 2R  0.47 D.W – 1.62 F = 9.67****N = 28Note: * - Significant at 80% confidence level ** - Significant at 90% confidence level *** - Significant at 95% confidence level **** - Significant at 99% confidence level The figures in brackets are T –statistics 258
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011 The three sets of equation have explanatory powers that ranges from 47% to 55% (R2). All the current yearcoefficients of the explanatory variables have the correct signs (positive). However, negative signs characterize thecoefficients of the variables (except recurrent expenditure) in the immediate past and these coefficients aresignificant statistically in most cases. This may be a manifestation of the so-called “crowding out” effects of fiscalpolicy variables in the economy. This may appear on the surface to confirm the negative coefficient of some fiscalvariables in Ajayi’s (1974) study. However, if one consider the fact that there is no purely fiscal model nordistributed lag structure in Ajayi’s (1974) study one will reasonably come to the conclusion that fundamentally thebasis for comparison let alone confirmation does not exist between this study and Ajayi’s (1974) study on thecontroversial issue of ‘crowding out’ effects of fiscal policy. A good number of the variables (explanatory) under the purely fiscal models/equations are statisticallysignificant at 99% confidence level. The tests for serial autocorrelation for each of the equation, however, remaininconclusive. The autonomous expenditure-variables significantly out perform the monetary variables in the currentperiod if we consider sizes of variable’s coefficients and more importantly the coefficient’s statistical significance. The negative signs of coefficient in this study may be symptoms of “crowding out” effects of fiscal policyvariable on the economy. This may be buttressed by the fact that the government expenditures which constitute themajor portion of our autonomous expenditures in this study usually involve sourcing of credit from the domesticeconomy at rates, risks and tenors more favourable and reliable than private lending/borrowing terms in the eyes ofproviders of loanable funds. And this will compete away funds for private investment transactions. The effect of this(channeling of large chink of funds to government) will be felt negatively in the economy if not in the current period(due to lags in policy effect) it will be discernible later. Again the “crowding out” effects of the autonomousexpenditures have, in recent times, been traced to the excess liquidity engineered by the monetization of governmentforeign exchange receipts and the ore than statutory borrowing (through ways and means Advances) of governmentfrom the central. Bank of Nigeria. The excess liquidity in the banking system has generated monetary oriented inflationarypressures in the economy and it has also led to depreciation of Naira ( in the foreign exchange market) throughexcessive bidding. All these have give rise to high inflationary pressures. Both high inflation and interest rate have, withoutdoubt, the tendency to discourage private investment and even some public sector investment thereby leading toreduction in macro economic activity both in real and nominal terms.Result of Test of Stability The Chon Test: is the test of stability employed in this estimated model. The test involved splitting theperiod of regression into two. One for 1970 to 1985 and the other one is from 1986 – 2006. On the whole, nine equations were estimated to enable us carry out our test which gives rise to an f-statistics for each of the three models estimated. The result of the tests are given below: 259
  • Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.2, No.4, 2011 Note: DF means degree of freedom The result of the test shows that all the estimated model are stable and therefore agrees with that Ubogu’s (1985) study. From the table above, it is implied that the direction of causality between gross domestic product and autonomous expenditure is unidirectional. The result seems to confirm the critical role being played by the monetization of foreign exchange receipt of the government whose consumption and investment expenditure constitue the prime mover of the economy. However, this result of our causality test must be taken with caution because in the discipline of econometrics, regression analysis is taken to deal with the dependence of one variables on other variables it does not imply nor extend to causation (Gujarati, 1988). If we then take regression analysis and the result and conclusions that arise there of for what they are a matter of dependence of one variable on others it will not be logical and reasonable to assess/judge them with a fundamentally different criterion or analysis that goes by the name of causality test or analysis (Sunmonu & Alarudeen, 2005). 5.0 Conclusion and Recommendation There appears to be a manifestation of the so called “crowding out” effect of fiscal policy action in Nigeria. These are associated with the negative signs assumed by coefficient of the lagged fiscal policy variable except recurrent expenditures). In the case where the lagged fiscal policy variables are characterized by positive signs coefficients, it is found to have little influence on gross domestic product. The result here suggest that government spending in Nigeria is not targeted to the real sector as they are seemed consumption rather than investment expenditures. For most periods, more of Nigeria expenditures were expended on transition programmes during the military regione. And these transition programmes were prolonged and subsisted for twenty four years out of thirty six years for which this study was conducted. It is important to state that government spending under military regome does not have recourse to democratic process as it is done during the civilian rule. 5.1 Policy Recommendation i. The government and its agent like the Federal Ministry of Finance and Economic Development, Central Bank and the National Planning Commission should adopt policies that will help minimize the “crowding out” effects of autonomous expenditures projects due to insufficient finding.ii. Government (at all levels) need to keep up the tempo of their requirement expenditure activity because of its positive effects on macro-economic activity both at present and in the immediate past. 260
  • Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.2, No.4, 2011iii. There is a need to ensure that the economy does not depend much on foreign exchange earning from a single source. There is therefore a need to invest the nation’s surplus foreign exchange resources in profitable investment overseas as it is being done by other oil exporting countries especially those in the middle east. There is also need to broaden government and private sources of foreign exchange by expanding exports to include manufactured goods, collecting local changes and foreign currency denominated feeds. Inflow of long term funds into the country should be encouraged. 261
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011 ReferencesAjayi, S.I. (1974), An Econometric Case Study of the Relative Importance of Monetary and Fiscal Policy in Nigeria, The Bangladesh Economic Review Vol. 31, No. 4, 321 – 339Atesoglu H. Somez (1975), The Relative Importance of Autonomous Expenditures and Money in Turkey, Journal of Monetary Economics, Vol. 1 No. 3, 369-373.Atesoglu H. Somez (1979), Simple Keynesian and Monetarist Model: Evidence from Post War Japan, The Review of Economics and Statistics, Vol. LX1 No. 2, 304-306.Atesoglu H. Somez and John A. Tillman (1980), Money, Autonomous Expenditures, Income and Causality in Korea, Journal of Monetary Economics, Vol. 6 No. 4, 527-534.Chow, G.C. (1960b), Test of Equality between Sets of Coefficients in Two Linear Regressions, Econometrica, Vol. 28 No. 3, 591-605.Corrigan, E. (1970), The Measurement and Importance of Fiscal Policy Changes, Review, Federal Reserve bank of New York Vol. 52.Frank, de-Leeuw and J. Kalchbrenner (1969), Monetary and Fiscal Actions: A Test of their Relative Importance in Economic Stabilization: A comment, Review, Federal Reserve Bank of St. Louis, Vol. 51 No. 4. 6-11.Frank, de-Leeuw and M. Gramlich (1969), Channels of Monetary Policy Review, Federal Reserve Bank of St. Louis, Vol. 51 No. 6.Friedman M. and D. Meiselman (1963), The Relative Stability of Monetary Velocity and Investment Multiplier in the United States 1897-1958, A series of Studies prepared for the Commission on Money and Credit, E.C. Brown et al eds; Stabilization Policies: Commission of Money and Credit (New Jersey: Prentice Hall)_, 165-268.Friedman M. (1956), The Quantity Theory of Money, A Restatement in: M. Friedman, ed. Studies in the Quantity Theory of Money, (Chicago: Chicao University Press)Granger C.W.J. (1969), Investigating Causal Relations by Econometric Models and Cross Spctra Methods, Econometric Vo. 37, No. 3, 424-438.Gupta L. Kanhaya (1979), The Relative Importance of Autonomous Expenditures and Money in India, The Indian Economic Review, Vol. 27 No. 1, 37-42.Keith E. Phillips (1969), The Short run Stability of Velocity and the Autonomous Spending Multiplier 1946-62, American Economic Review, Vol. 59 No. 2, 418-442.Keran, M.W. (1970), Monetary and Fiscal influences of Economic Activity, The Foreign Experience, Review Federal Reserve Bank of St. Louis, Vol. 52 No. 2 16-28.Khan S. Mohsin (1978), The Relative Stability of Velocity and Investment Multiplier: Some Further Tests: Journal of Monetary Economics, Vol. 4 No. 1, 103-119.Koutsoyinanis A. (1978), Theory of Econometrics, 2nd Edition (London: Macmillan).Poole William and Elida B.F. Kornblith (1973), The Friedman-Meiselman C.M.C. Paper: New Evidence on an Old Controversy, American Economic Review Vol. LXIII No. 5, 908-917. 262
  • Journal of Economics and Sustainable Development www.iiste.orgISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.2, No.4, 2011Sims, Christopher A. (1972), Money, Income and Causality, American Economic Review, Vol. 62 No. 2, 540-552.Teigen, R.L. (1975), Monetary and Fiscal Influences of Economic Activity: Evidence from Denmark, Finland and Norway, Swedish Journal of Economic , Vol. 77.Ubogu, R.E. (1985), Potency of Monetary and Fiscal Policy Instruments on Economic Activities of African Counties, Savings and Development Vol. IX No. 4, 441-456.Equations F-Statistics F.0.05(table) D.F Decision1. -1.5 2.71 7,15 Stable2. -1.83 2.82 4,22 Stable3. -3.28 2.87 4,20 StableNote: DF means degree of freedom The result of the test shows that all the estimated model are stable and therefore agrees with that Ubogu’s(1985) study.Result of Causality TestDirection of Causality F-Value F 0.05(4,17) Decision∆A→∆Y 1.18 2.96 Reject∆Y→∆A 9.55 2.96 Do not reject 263